Capital Economy, Business and Finance
Rachel Reeves’s rainy day fund has evaporated.
Capital Economics estimates that the sell-off in UK bonds this week has added almost £9 billion to government borrowing costs, effectively wiping out the chancellor’s spending buffer.
That means more tax hikes, spending cuts, or both. Sterling has fallen 2 per cent in three days, yields on 30-year bonds are at their highest level since 1998 and retail stocks took a pounding despite bumper Christmas trading results.
Mounting concerns over US government debt have also led to a jump in Treasuries’ yields, but the difference is the dollar is still rising.
The UK is uniquely exposed to global bond fluctuations due to a) memories of the mini-budget, b) its £100 billion interest payments bill and c) the fact so much of its debt is held by foreign investors.
